Bank shift hurts rand Nonbanker is named to run central bank of South Africa

Currency

JOHANNESBURG, South Africa -- President Nelson Mandela's appointment of a left-wing politician to head this nation's reserve bank created political furor here and sent the South African rand plunging briefly to an all-time low yesterday.

The rand, already bruised by the global strength of the U.S. dollar and battered by lack of international confidence in South Africa's economic prospects, plummeted on the first day's trading after the weekend announcement that Tito Mboweni, 39, labor minister in the ruling African National Congress, will move over to the bank.

Opposition parties protested the break with the practice of naming a banker as governor, whose main job is to protect the national currency to forestall inflation and promote economic growth. All seven previous governors in the central bank's 78-year history were from banking backgrounds.

"Bad news for South Africa," said Marthinus van Schalkwyk, leader of the National Party, which lost power to South Africa's first democratically elected black government in 1994.

Van Schalkwyk said the reserve bank governor should be independent, able to resist political pressure and have a grasp of the job.

"Thus far, Mr. Mboweni has not distinguished himself as such a person," the opposition leader said, portraying the appointee as a friend of the labor unions.

The Democratic Party said Mboweni lacked experience for the job and would have to show greater political independence to succeed at the bank.

The ruling African National Congress said yesterday that the criticism was motivated by the need to create the false impression that blacks are incapable of running the country or the economy.

Deputy President Tito Mbeki said Mboweni was selected after consultations with business leaders in South Africa and members of the international banking community, including the International Monetary Fund.

He expressed confidence that Mboweni would be able to fulfill both the domestic functions of the reserve bank governor, and play "a critical role in contributing to the provision of answers to the new and challenging questions which relate to the management of the world economy, the economic re-integration of southern Africa and the success of the African renaissance."

"There is no way we would shoot ourselves in the foot by compromising the governor's independence," said Mbeki, who is expected to replace Mandela next year.

Business executives and local and international bankers reacted cautiously, if not negatively, to the prospect of having a partisan activist in such a sensitive and crucial position in a country facing the twin perils of inflation and recession.

Mboweni, who has a degree in economics but no banking background, will spend the next year as a special assistant to the current governor, Chris Stals, and will assume full charge of the central bank in August next year.

The lengthy transition was meant to give Mboweni a chance to learn on the job and lessen market jitters after rumors of a change at the bank began to circulate two weeks ago.

"Any good that may have come from trying to calm uncertainty about Dr. Stals' successor by naming him well in advance will be undone by the caliber of the selection," said an editorial in the conservative Citizen newspaper. "The effect of Mr. Mboweni's ill-considered appointment will resemble that of a torpedo, aimed at our barely floating rand. We need a steady hand, not an unpredictable activist, at the tiller."

The rand, which has lost 30 percent on the dollar over the past year, fell to a record low of 6.78 to the dollar during initial trading but recovered to 6.45 later. It closed at 6.38 Friday.

With the rand tottering, interest rates -- already almost usurious here -- are expected to increase again, putting the squeeze on mortgage holders and further depressing an economy already close to stalling.

The prime rate yesterday stood at 24 percent and the mortgage rate at 21.5 percent.

Perhaps the heaviest baggage Mboweni carries to the bank is his reputation as a leftist who has introduced several bills friendly to labor during his four years in the Cabinet.

That has not prevented strains from emerging between the ruling African National Congress and its alliance partners, the trade unions and communists. Both oppose the government's major economic strategy, viewing it as too market-oriented at the expense of labor interests, particularly job creation to reduce the 30 percent unemployment rate.

But the differences are unlikely to deepen into outright breach as political parties gear up for next year's general election. A bigger problem for the government is to get the lackluster economy growing before the voting, in which it hopes to gain an unassailable two-thirds majority.

Shepherd Mdladlana, a communist member of the National Assembly, skilled negotiator and advocate for strong government ties with both unions and business, was named to replace Mboweni as labor minister.